Legal Updates

Introduction

On 24 January 2023, the Minister for Finance Michael McGrath announced the publication of a public consultation process on the transposition of the EU Credit Services and Credit Purchaser’s Directive (EU) 2021/2167 (the “Directive”) into Irish law. The public consultation process is open until 8 March 2023. The consultation will give stakeholders an opportunity to comment on the national measures which will transpose the Directive into Irish law. The deadline for transposition of the Directive is 29 December 2023.

Background

While Ireland has an existing regulated credit servicing regime, the Directive was introduced to foster the development of a secondary market for Non-Performing Loans (“NPLs”) across the EU. The directive lays down a common framework for the future transfer and management of bank originated NPLs which are sold after 30 December 2023. The Directive does not apply to the sale of performing loans originated by credit institutions or to transfers of non-performing portfolios occurring prior to 30 December 2023.

The current national regulation is broader than the regime provided for in the Directive in a number of ways including the nature of the credit agreements to which it relates (performing and non-performing) and the fact that legal title holders are required to be regulated.

The Consultation Process:

The consultation process is designed to assist in informing the Department of Finance’s view on how to transpose the discretionary elements of the Directive.

There are ten discretionary provisions contained within the Directive which can be taken into consideration by Member states when drafting national implementing measures. The consultation process is seeking views on how these discretions should be exercised.

Summary of Consultation Questions

The Directive allows Member States to amongst other things, tailor what type of credit servicers would fall in the scope of the Directive (public notaries, bailiffs, lawyers), determining if credit servicers should be allowed to receive and hold funds from borrowers, should natural persons be credit servicers. The Directive also allows Member State that already have regimes equivalent to or stricter than that provided in the Directive to elect if existing credit servicers will be automatically recognised as such once the relevant national legislation comes into effect.

The participants in the Irish NPL market are keen to understand how the Directive will be implemented in Ireland, in particular the treatment of holders of legal title to credit agreements and how the existing regulatory regime will operate. Question 10 of the consultation paper is likely to receive the most focus of participants in the Irish market. Question 10 is Do you think that Ireland’s existing national authorisation and regulatory regime in respect of credit servicing firms (i) is equivalent to, or stricter than, those established in this Directive for credit servicing activities and (ii) if so, should such regulated entities be automatically recognised as authorised credit servicers?

The interaction between the Directive and the existing national legislation has been the topic of interest to stakeholders in the Irish portfolio sale market since the publication of the first draft of the Directive. Of particular interest is how the implementing legislation will treat mixed portfolios containing NPLs and performing loans. It appears that Ireland will retain the existing regulatory structure (including the regulation of legal title holders) will apply to transactions within the scope of the Directive and will continue to apply to performing portfolios and portfolio disposals by non-bank lenders.

Please contact any of the Dillon Eustace banking and capital markets team if you wish to discuss the Directive and its transposition into Irish law.